Is Britain in Danger of being Left Out of Globalization?

There remains great uncertainty in the aftermath of the UK vote to leave the European Union. Few seem to have a plan for what Brexit will look like and how the UK’s relationship with the outside world will take shape.

Much of the confusion about how Brexit will affect the British economy has resulted from the inability of those for and against it to acknowledge the realities of the position of the UK in the contemporary global economy. This failure to understand the realities of globalisation is partly why there is such confusion about how to deliver the kind of post-Brexit UK demanded by those who voted leave. However, regaining national sovereignty is extremely difficult, if not impossible, in today’s global economy.

The interconnected world

The recent global financial crisis should have sent a powerful message. The degree of interconnection between places in the global economy has reached unprecedented levels and attempts to “unpick” these interconnections are highly problematic.

Globalisation is complex. It is no longer a case of “us” and “them”. Capital, goods and services flow within, between and across national borders – and the flow is uneven. It is often directed through key cities. Therefore, when we talk about flows of foreign direct investment between the UK and Germany, we are actually discussing flows of people and money between cities such as London and Berlin.

In fact, cities are the key drivers in trade. It is no surprise therefore that there were significantly higher votes to remain in the EU in cities such as London and Manchester. This is because these cities are points in the global economy through which trade, services and people flow. It is in these locations that we can most easily see the benefits of interconnection with cities in the EU and beyond.

Outside of the major cities, the regions of the UK have experienced a downward shift in the scale at which economic activity takes place and political power is exercised. The national shift from manufacturing to a service-based economy has had a geographically uneven impact. Many manufacturing industries in the UK’s regions have shrunk or disappeared. This has not been helped by UK national policy, which focuses on the financial services sector (predominately in London).

Globalisation’s disconnect

Globalisation has brought with it disconnection between the way that economies and their management have been simultaneously downscaled and upscaled. So, as well as the concentration of decision making in Westminster, there are also a number of decisions being made abroad that affect regions across the UK – the evolution of the European Union epitomises this process.

This upscaling of power is necessary. Many of the most important issues of the last three decades are shared across national boundaries – take for example environmental concerns. The formation of supra-regions begins with an acknowledgement of the benefits of removing trade barriers and having free movement of goods and services, which should create opportunities for all regions of the UK.

In fact, the best hope for deprived areas of the UK is not to place decision making squarely back in the hands of the UK government. This gives power back to the very institutions that created and exacerbated the regional inequalities seen in the UK today. Benefits such as investment in local enterprises and infrastructure, improvements in working conditions and levels of employment result from international engagement and cooperation.

Those who – justifiably – feel isolated and economically depressed should call for greater decision-making power at a more local level. Local power, combined with access to international resources and opportunities, can start rebuilding local economies. Globalisation makes this possible as cities and regions do not necessarily need to go via London for trade and investment. These connections are essential for local economies to compete in the globalised world.

However, leaving the EU means leaving the hundreds of trade agreements the UK has with non-EU countries and also possibly the freedom of movement of goods and services there is within the EU. Until these are rearranged (which will take several decades), the UK’s constituent regions may struggle to access international markets. Therefore, the “take back control” rhetoric offers no solutions, only problems.

The UK government has consistently failed to articulate the rationale and benefits of upscaling in its relations globally (specifically in the form of EU membership), despite the economic benefits, it has brought. It is not about the removal of national boundaries but rather an acceptance of how so much of what drives the global economy occurs outside of these strict boundaries.

Closer economic cooperation is the only logical response to globalisation and the best way to ensure stable growth. Indeed, the short, medium and long-term impacts of the Brexit vote will surely serve to provide the UK with a harsh lesson in the dangers of going it alone.

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Located in Tokyo, Japan, ADBI is the think tank of the Asian Development Bank. Its mission is to identify effective development strategies and improve development management in ADB's developing members countries. ADBI has an extensive network of partners in the Asia and Pacific region and beyond. ADBI's activities are guided by its three strategic priority themes of inclusive and sustainable growth, regional cooperation and integration, and governance for policies and institutions.